RBI to adopt wait, watch approach on rate cuts

Mumbai

The newlyconstituted Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel is unlikely to lower rates at its maiden policy review on Tuesday as it awaits more supporting data on inflation.The monetary policy review on October 4 will be the first by the six-member MPC as well as Governor Patel, who as the deputy governor had described the RBI as an owl when it comes to inflation management. “I don’t think the Reserve Bank is going to change rates as inflation – both WPI and CPI – have not softened much,” Bank of Maharashtra MD and Chief Executive RP Marathe said. August retail inflation eased to a five-month low of 5.05 per cent but WPI inflation climbed to a two-year high of 3.74 per cent. Before the dip in August, both the retail as well as wholesale price indices were on a continuous upward spiral. The Centre had in August notified 4 per cent inflation target with a range of plus/minus 2 per cent for the next five years under the monetary policy framework agreement with the RBI. Patel was the one who wrote the inflation glide path for RBI when he was deputy to former Governor Rajan. Analysts say it is unlikely he will jettison his guard on price rise, especially under the new inflation targeting framework. “RBI is unlikely to cut rate this time,” Union Bank of India Chairman and MD Arun Tiwari said. On his policy expectations from the new Governor, he said Patel may announce “some more measures related to resolution of non-performing assets”. Rating agency Crisil thinks there will be no rate cut on Tuesday as “RBI may choose to wait for some more time before wielding the knife as inflationary trends may accelerate going forward.”